Cooling air fare rises put brakes on inflation

Cooling air fare rises put brakes on inflation

Reduced air fares and high street discounting have contributed to a reduction in the rate of inflation in the UK to 2.8% in July.

According to official government consumer prices index (CPI) data the cost of air travel rose at a slower rate than in previous months at 2.7%.

As recently as May that figure was over 21% having jumped from just 0.8% in April.

The recent UK heatwave was blamed for the slowing in prices which have seen monthly increases this summer of around 13% compared to the 21.7% monthly increase seen since July 2012.

The slowing rate of overall inflation will be a welcome relief for households coping with stretched budgets.

But employment data is expected to show that price rises are continuing to grow at a faster rate than earnings.

The retail price index measure of inflation, which includes housing costs but isn’t used as an official measure, was at 3.1% in July, down from 3.3% in June.

Inflation is expected to remain above the official Bank of England target of 2% for some time largely fuelled by government pressures like university tuition fees.

However, the government said the current rate would have been higher had it not capped fuel price rises by freezing duty.

Alan Clarke, an economist at Scotiabank, told the Daily Telegraph: “I think it’s very hard for inflation to slow to 2% when you’ve got things like university tuition fees [and] tax hikes all making it much harder to hit 2% than it used to be.”

The new governor of the Bank of England this week indicated in his first press conference that interest rates will only rise when unemployment falls to 7%.

It is expected that this won’t be for around two years, indicating that rates will remain at their current historically-low level for some time despite inflationary pressures.


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